Wilshire Highlands

Well, that concludes my presentation- you all get it!

All well managed entities look beyond the current year when preparing a financial plan.

What’s more:  They distinguish between ongoing operational expenses and capital outlays for infrastructure and equipment.

More importantly, they take the Long Term projections seriously and adjust their strategic plans to accommodate anticipated turns in the economy.  They don’t wait until they are overlooking a precipice before making vital decisions.

Los Angeles deals with its financial plan one year at a time.  It is not as if the City Council and Mayor lack the data to deal with the future –the data is there…..they simply lack the courage and commitment.

In an environment where labor costs comprise around 80% of the general fund outlays and unions such as the SEIU and the IBEW effectively control many of our elected officials, it should not come as a surprise to you or me that problems are pushed into subsequent years without any plan to deal with them when the time comes.

I recall a Valley Alliance meeting back when Measure S was on the ballot.

A representative of the Mayor was in attendance to answer our questions about it. She presented the Mayor’s mantra that police protection would be curtailed without the tax revenue.

I asked her if the City had a backup plan in the event the measure went down.  She replied: “we are just hoping it won’t be defeated.”

Think about that:  basing a financial plan on hope.

President Obama wrote the Audacity of Hope.  But I don’t think that was what he had in mind.

Given that City Hall will not make responsible decisions willingly or timely, taxpayers have no choice but to set decision making standards for them.

Quite simply, we must require our municipal government to prepare and approve a long term balanced financial plan- that is a plan where projected costs over a period of several years must be supported by projected revenues, with appropriate reserves set aside for possible downturns, with prioritization of programs and goals to assure adequate funding for both core service operations and capital infrastructure improvements.

A Charter Amendment may be the only way to accomplish this.

This is not rocket science.  One only needs to look at our neighbor to the south, Orange County, to see how it is done.

The really good news is that the City does not have to start from scratch -the CAO already prepares a five year budget forecast.

However, it is only offered as a tool for preparing the current year budget.  It is not binding.

Based on some of the decisions the City Council and Mayor have made over the last several years, I would have to say the forecast is largely ignored.

Our elected officials seem to use two methods of making financial commitments:

1. There’s the Jeopardy Lightning Round method
2. Then there is the Council of Trent approach (an Ecumenical event that spanned decades)

The sad part is that there is an inverse relationship between which of the two methods is used and the magnitude of the decision.

FOR EXAMPLE:    The Council rushed through Measure B with little or no deliberation and public input, but took  6 years to approve a golf cart contract  – I do not believe the contract called for solar powered carts. 

There is no evidence that either these or any decisions  were made in the context of overall priorities in the long term.  City Hall always seems to be in a one-off mode…the idea de jour….simply winging it.

How, then, will a multi-year plan be effective when we are governed by the ungoverning?

With the right controls, it can work.

Allow me to tell a story:

There was a wealthy king who wanted his daughter, the heiress to his throne, to marry a man who possessed great wisdom.  It was important for the sake of the kingdom’s future.

He narrowed the choices down to three suitors: an engineer, a lawyer and an accountant.

He formulated one question he would pose to each suitor:  what does 2 + 2 equal.

He called upon the engineer first, who proceeded to present a complex equation with sins, co-signs, tangents, reciprocals…but in the end determined that the answer was 4.  The King thanked him for coming but said he was not a good match.

The lawyer was next….he cited court  cases involving the merits of various methods of teaching mathematics, from guess and check to rote memorization.  However, in the end, he concluded that the Supreme Court would support an answer of 4, in a split decision of course. He was dismissed.

Finally, the accountant entered.  The King asked..”What does 2+2 equal?”

The accountant without hesitation said, “Anything you want it to be.”

And he and the princess lived happily ever after.

Well, I’m an accountant, but I want 2+2 to equal 4, at least most of the time.

You have heard the expression “the devil is in the details.”

When it comes to preparing a long term budget, “the devil is in the assumptions.”

If we allow our officials to play fast and loose with the assumptions in a multi-year budget, we are not going to be much better off than we are today. 

Politicians can make anything look good using rosy projections.  So can crooks- Bernie Madoff promised annual returns of 12 to 20%.

A good example of how critical assumptions are involves LACERS and CALPERS.  Each is forecasting an 8% return on assets despite the vast uncertainties of the economy’s future.  In uncertain times, we must be conservative in our assumptions.  Using 8% could mask an even greater unfunded pension liability. 

I can assure you our City Council will be reluctant to consider anything less than the most optimistic forecast.

Therefore, any proposal for the City to adopt a multi-year plan must require an independent source for key assumptions,  such as revenue forecasts, unemployment, how much in the way of property taxes the state will allow to trickle down.

We are fortunate Los Angeles is blessed with many fine institutions of higher education, industry associations and economic policy groups.  I propose that the Charter Amendment authorizing the multi-year concept require the formation of a think tank, a consortium of top experts from all of these sources to develop the assumptions.  Of course, the CAO needs to be part of this process too. 

It is essential to de-politicize the assumption formation process as much as possible.

Now, no one has a crystal ball.  Assumptions must be re-evaluated.

A multi-year plan must be reviewed regularly and reset before another fiscal year approaches.

A multi-year plan is not static.  A good one continually rolls forward with the passage of time.

It will always be a work in process.

There are two ways to put a Charter Amendment on the ballot.  The more expedient way would be for the City Council to create it.

I am not optimistic there would be enough, if any, support in the Council.  Even if there were, I fear the amendment would be watered down, rendering the end product ineffective.

We may have to consider the bottom up approach and obtain over 200,000 signatures to get it on the ballot.

This will take a well funded organization.  Just creating the language will require time and money.

We will also have to fight challenges and scare tactics by the usual suspects if we succeed in obtaining the signatures.

“Nothing worthwhile comes easily. Work, continuous work and hard work, is the only way to accomplish results that last.” Hamilton Holt (Educator Editor and founding member of the NAACP).